United Kingdom Journals

Employment Rights and Business Transfers - Changes to the Acquired Rights Directive

Vivien Shrubsall

Professor of Law and Director of Centre for Legal Practice,
University of Exeter

<V.J.Shrubsall@exeter.ac.uk>

Copyright © 1998 Vivien Shrubsall.
First Published in Web Journal of Current Legal Issues in association with Blackstone Press Ltd.

Summary

The European Acquired Rights Directive 77/187 is amended by Council Directive 98/50. This article analyses the changes to Directive 77/187, considers the extent to which the changes will resolve complexities of interpretation and application and anticipates likely amendments to the UK national regulations.

Contents

Introduction

1. What transfers are included?
2. Effect of a transfer
3. Dismissal, insolvency and variation of contract terms
3. Employee representation, information and consultation
4. Conclusion

Introduction

The 1977 Directive is intended to safeguard the rights of workers on a transfer of the employing undertaking by ensuring that workers are entitled to continue working for the transferee employer on the same terms and conditions as those agreed with the transferor employer. Whenever a transfer is within the Directive, contracts of employment run with the undertaking; the transferee cannot take the business without the employees and must take those employees subject to existing employment rights and obligations. Further, a transfer cannot constitute grounds for dismissal, whether carried out by the transferor or transferee, unless there is an economic, technical or organisational reason entailing changes in the workforce. Major controversies arising from the Directive have been its application to the out-sourcing or transfer of service contracts, the ability of the transferee employer to negotiate changes to the existing terms of service of workers transferred and the effect of a dismissal which is connected to the transfer. The 1998 amendment is the fruition of several attempts to address and resolve those issues.

The European Commission first proposed amendment in Autumn 1994, then presented revised proposals in February 1997. The UK government used its Presidency of the Council of the EU for the first six months of 1998 to carry those proposals forward and negotiate agreement amongst Member States. The new Directive is stated to be effective on the date of publication in the Official Journal (O.J. L 201/88), ie 17th July 1998, but to the extent that its implementation requires harmonisation measures within national legal systems, Member States have until 17 July 2001 to comply. The UK Department of Trade and Industry is expected to present consequent amendments to the national provisions, the Transfer of Undertakings (Protection of Employment) Regulations (TUPE), by early 1999 for implementation by the summer of 1999.

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1. What transfers are included?

The original text of the Acquired Rights Directive provided merely that it applied "to the transfer of an undertaking, business or part of a business". It was left to the European Court of Justice (ECJ) to give guidance on what amounted to an undertaking for the purposes of the Directive. So it was established that a non-profit making concern could be included (Redmond Stichting v Bartol Case 29/91 [1992] ECR 1-3189; [1992] IRLR 366), that what was needed was the transfer of a "stable economic entity" (Rygaard v Dansk Arbejdsgiverforening Case 48/94 [1995] ECR 1-2745; [1996] IRLR 51) and that it was for the national court to determine whether or not a transfer of a stable economic entity had occurred, taking account of various factors, including the transfer of tangible and intangible assets, goodwill, work in progress, employees, customers, suppliers, and whether the same or similar activities were carried on before and after the alleged transfer (Spijkers v Gebroeders Benedik Abattoir CV Case 24/85 [1986] ECR 1119). The Directive specifically included the transfer of part of a business and the ECJ interpreted that to mean that a service or activity supporting the main undertaking, or even a peripheral activity, could be included provided that the activity was severable and retained its identity after the alleged transfer (Rask & Christensen v ISS Kantineservice A/S Case 209/81 [1982] ECR 2511; [1993] IRLR 133). Though it has never been raised as an issue, the new version of the Directive corrects a drafting anomaly in the original version by making it clear that it applies to the transfer of part of an undertaking, as well as to part of a business.

Much of this ECJ interpretative guidance has now been adopted in an extended Article 1 setting out the scope of the Directive and definitions of terms used. So, the Directive still requires the transfer of an undertaking or business but the ECJ's phrase "economic entity" is employed now as an aid to the identification of an undertaking or business. Article 1(b) states that there is a transfer within the meaning of the Directive where there is

"a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary".

A major issue is whether this new definition resolves the uncertainty surrounding the transfer of labour-intensive service contracts, particularly in the context of the contracting-out and competitive tendering for support services. The new definition adopts the Rask approach so that the activity can be ancillary, but seems still to require the transfer of the activity as part of the transfer of an economic entity.

The difficulty with the transfer of such service contracts is that commonly there are no tangible or intangible assets involved: the economic entity is made up of only the activity (including the marketing, management and administration of the activity as well as its performance) and the workforce engaged to perform it. So most of the balancing factors usually used to determine whether a transfer has taken place are inappropriate. Of the factors commonly used to determine whether there has been a business transfer, only the continuation of the activity and the transfer of workers are applicable. It has not been at all clear whether the application of the Directive required both of those factors to be satisfied or only the former. On the one hand, it seemed undesirable that the Directive could be triggered merely by the transfer of an activity because that would mean that the loss of one of several commercial contracts in normal market competition would be included, a result that could never have been intended. The amendment to the Directive proposed in the Autumn of 1994 specifically provided that the transfer of only an activity was insufficient. (See The Official Journal C 274/10). But it appeared illogical and circular to make the application of the Directive, the main consequence of which was the compulsory transfer of employees, dependent on whether or not employees were transferred.

In Schmidt v Spar und Leihkasse Der Fruheren Amter Bordesholm Case 392/92 [1994] ECR 1-1311; [1994] IRLR 302 the ECJ held that the cleaning of bank premises at a branch of a national banking business could fall within the Directive, even where the service was carried out by only one employee. In that case, the ECJ regarded it as significant that the incoming contractor offered to re-engage the single employee who previously performed the cleaning service at the branch, even though she did not actually transfer because there was a dispute over the contract terms on which she was entitled to transfer. The decision of principle rested on both factors being satisfied ie the activity and the workforce moving to the transferee. In Süzen v Zehnacker Gebaudereinigung GmbH Krankenhausservice Case 13/95 [1997] ECR 1-1259; [1997] IRLR 255 it was established that the Directive did not apply to a change of contractor who provided a support service unless there was a concomitant transfer of significant tangible or intangible assets or the taking over by the incoming contractor of a major part of the workforce previously assigned by the outgoing contractor to the performance of that service to the principal. Both cases support the contention that the transfer of the activity alone is not enough to trigger the application of the Directive: both require the transfer of the activity plus, in the absence of relevant tangible or intangible assets, the transfer of the workforce, or a significant proportion of that workforce. Clearly, where the transfer involves some asset moving across as well as the labour-intensive activity it will be easier to establish a transfer within the Directive. Where, for example, the payroll function is contracted out and the contractor takes over the employee data base as well as the continuing activity, a national court may decide that the circumstances amount to a relevant transfer. But where the labour force is the only asset, that labour force, or a significant proportion of it, must move across in order to amount to a transfer of an undertaking. That was the interpretation of Süzen adopted by the UK Court of Appeal in Betts v Brintel Helicopters Ltd [1997] IRLR 361 where it was held that the transfer of helicopter services to carry workers and goods to and from oil rigs in the North Sea was not a relevant transfer. The incoming contractor took over no assets and did not employ anyone who had previously worked for the old contractor. The Court of Appeal found that the economic entity in that case comprised the contract for the provision of transport services, landing rights on oil rigs, the helicopters, infrastructure (base premises, landing strips and buildings) and staff. No helicopters, infrastructure or staff were taken by the transferees; they simply obtained a fresh contract for the provision of transport services to the same oil rigs. The labour force was not the only asset of the operation and the vast majority of the assets were retained.

The ECJ decisions in Schmidt and Süzen, particularly that in Süzen, developed the meaning of "undertaking" by recognising that a grouping of workers performing an activity may be identified as an undertaking where no other assets are involved and, if that identity is maintained after the transfer, the Directive is triggered. The ECJ said in Süzen that "in certain labour-intensive sectors a group of workers engaged in a joint activity on a permanent basis may constitute an economic entity". That is now reflected in the new definition which refers to a transfer of an economic entity which retains its identity, meaning "an organised grouping of resources...pursuing an economic activity".

Applying that definition to labour-intensive service contracts, it means that the performance of one of several service contracts by a pool of labour not specifically assigned to that contract is not an "economic entity" so that the loss of that contract cannot trigger the Directive. But where a dedicated and severable workforce is deployed on the performance of a particular, stable contract, there is an identifiable "economic entity" within the meaning of the new definition which can be the subject of a transfer.

However, it remains necessary to show a transfer of that economic entity in order for the Directive to apply. The new Article 1 (a) does not change that; it specifically requires a transfer of the entity ie the activity and the organised grouping of resources. So, it is argued, the Süzen decision is not extended by the amended Directive: the loss or change-over of a service activity will only trigger the amended Directive if the workforce or a major part of the workforce crosses to the transferee, along with the right to perform the service. The only change introduced by the amendment is the "enactment" of the judicial approach allowing the identification of a dedicated group of workers performing a particular service contract as an "economic entity". In order to trigger the Directive, that economic entity, ie the activity plus the workforce, has to be transferred.

If that is right, the legitimacy of the Employment Appeal Tribunal approach in ECM (Vehicle Delivery Service) v Cox [1998] IRLR 416 must be doubted. The EAT held in that case that there was a transfer of an undertaking where the applicants' employers lost a car delivery contract on which 19 drivers had been exclusively deployed, even though none of the drivers was taken on by the transferees. Morison J, President of the EAT, interpreted Süzen and Schmidt in the way argued above ie that there was an economic entity, as distinct from an activity, where employees are dedicated to the performance of a particular service contract involving no other assets. However, he went on to hold that the TUPE regulations applied, even in the absence of any transfer of the workforce, by adopting a "purposive" approach; he noted that the transferee did not take on the workforce precisely because they were asserting that the TUPE rules applied. Morison J thought that it would not be proper for a transferee to be able to control the extent of his obligations by refusing to comply with them. What he did was to identify an economic entity but then he assumed the transfer; ie because the activity transferred and because there was an identifiable and severable workforce dedicated to the performance of that activity, the transferee could not have the activity without also taking the workforce.

That might be regarded as a desirable result, and in a commentary on the Süzen decision at (1998) 61 Modern Law Review p85 the present author advocated an approach whereby the workforce dedicated to a labour-intensive service contract was treated as such an integral part of the economic entity that it could not be divorced from the activity. However, as it was recognised in that commentary, such a result is not consistent with Suzen and it is difficult to see how it is justified under the original Directive. Further, the very fact that the recent amendment procedure afforded the opportunity to provide for a deemed transfer in these circumstances, which was not taken, suggests that it cannot have been intended in the new version. Indeed, the preamble to the new Directive refers to clarification of the legal concept of transfer in the interests of legal security and transparency but states that this clarification does not alter the scope of Directive 77/187 as interpreted by the Court of Justice. It is argued that Morison J is out on a limb in finding a transfer on such facts as those in Cox and he is stretching the "purposive" approach to interpretation beyond legitimate boundaries.

The new Article 1(c) provides that the Directive applies to public and private undertakings engaged in economic activities whether or not they are operating for gain, enacting the ECJ decision in Redmond Stichting v Bartol. It goes on to state that an administrative reorganisation of public administrative authorities, or the transfer of administrative functions between public administrative authorities, is not a transfer within the meaning of the Directive. That is an enactment of the ECJ decision in Henke v Gemeinde Schierke & Verwaltungsgemeinschaft "Brocken" Case 298/94 [1996] ECR 1-4989; [1996] IRLR 710; indeed, the latter part of the new Article 1(c) is almost a verbatim transcription of the ECJ ruling. In that case the applicant lost her job as secretary to the mayor of a German town when the administrative system was dissolved and its functions transferred to a regional authority. The applicant was offered a position with the new authority but she claimed a right to remain at her old location. The ECJ held that the Directive did not apply. It is argued that the Henke principle has only very narrow application and excludes from the Directive administrative functions relating purely to the exercise of public powers which do not involve any economic activity. The decision, and its adoption in the new Article 1(c), has no application to the contracting-out of services by public authorities.

The exclusion from the Directive of sea-going vessels remains, notwithstanding the UK government's support for an amendment to bring sea-going vessels fully within its operation. See para 22 of the UK Public Consultation Document issued by the Department of Trade and Industry, December 1997. The UK's TUPE Regulations do apply to sea-going vessels as to other undertakings, although the Regulations provide that the mere transfer of a ship without more does not constitute a transfer.

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2. Effect of a transfer

Article 3(1) of the new Directive is a repetition of the equivalent provisions in the old Directive: the transferor's rights and obligations under a contract of employment transfer to the transferee and Member States may provide for joint and several liability of transferor and transferee in respect of obligations which arose before the date of transfer. In spite of the Commission's proposals to make the introduction of joint and several liability mandatory, it remains optional. The October 1994 amendment proposed mandatory joint and several liability for obligations which arose before the date of transfer and fell due within a year following the transfer; the February 1997 revision proposed mandatory imposition of such liability to obligations which both arose and fell due before the transfer. The UK government indicated its objection to such proposals in the December 1997 Public Consultation document. The stated reason was concern over its application in insolvency cases where the selling on of a business as a going concern in a TUPE transfer could leave the insolvency practitioner with a contingent liability on the default of the transferee, with the result that practitioners might be deterred from seeking to achieve such sales.

A new Article 3(2) enables Member States to adopt appropriate measures to ensure that the transferor notifies the transferee of all rights and obligations which will transfer, so far as those rights and obligations are or ought to have been known to the transferor at the time of transfer. However, the Article provides that a failure by the transferor to notify in accordance with any such provisions cannot affect the rights of employees against either the transferee or transferor. This provision was not included in either of the Commission's proposals for amendment but was heralded in the UK government's Public Consultation Document. It was recognised there that contracting parties can ensure that suitable contract specifications are drawn up with appropriate indemnities if necessary, but, especially in a competitive tendering exercise, sitting contractors can show reluctance to share with bidders for contracts information about the existing workforce and legislative compulsion was thought appropriate. It seems likely that domestic provisions will take the form of a requirement to give comprehensive and accurate information about the size and terms of employment of the relevant existing workforce where a contract is to be or may be assigned or reassigned on a basis which would constitute the transfer of an undertaking, backed with a statutory indemnity by way of remedy for breach.

Article 3(3) repeats, without amendment, the obligation on the transferee to observe the terms of any collective agreement to which the transferor was subject, with a proviso enabling Member States to limit the duration of that obligation to not less than one year.

Article 4 repeats the exclusion of benefits under supplementary company pension schemes from the normal transfer of obligations, but whereas the old Directive provided for the complete exclusion of such benefits, the new version allows Member States to provide otherwise, ie Member States may "contract in" to the internal compulsory transfer of these benefits. Again, this amendment was not included in the Commission's proposals but the UK Public Consultation Document invited reactions to ending the exclusion of occupational pension rights. It has been argued that the exclusion of pension terms is inconsistent with the underlying aims of the Directive and that, unless the transferee employer provides a broadly comparable scheme or appropriate compensation, constructive unfair dismissal claims brought by the dispossessed employees may succeed anyway. In practice, to avoid that risk, UK public sector employers contracting work out to the private sector usually already require transferees to provide broadly comparable occupational pension cover or compensation to reflect its loss. In the private sector, the exclusion of pension terms can operate so as to undermine the competitive position of the sitting contractor since new bidders may undercut the contract tender by omitting comparable pension packages or by offering none at all. It seems likely that, provided technical problems over the establishment of comparability can be solved, the UK will adopt a form of compulsion under which the transferee is obliged to offer actuarially comparable pension terms.

As before, even where the exclusion of pension terms from transfer continues, the Directive requires Member States to adopt measures to protect the immediate or prospective pension rights of employees and ex-employees of the undertaking transferred. The equivalent provision in the original version of the Directive was interpreted by the Court of Appeal in Adams v Lancashire County Council & BET Catering Services Ltd [1997] IRLR 436 as requiring protection of accrued pension rights and contributions in respect of periods of service occurring prior to the transfer.

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3. Dismissal, insolvency and variation of contract terms

Articles 4(1) and 4(2) have not changed: a transfer shall not constitute grounds for dismissal of an employee but dismissals may take place for economic, technical or organisational reasons entailing changes in the workforce; Member States may exclude from that rule employees who are not covered by domestic protection against dismissal; if, by reason of the transfer, the contract of employment is terminated because there is a substantial change in working conditions to the detriment of the employee, the employer is regarded as responsible for that termination.

However, there is a new Article 4a and it is this provision which should resolve some of the uncertainty about the ability or inability of a transferee employer to negotiate downward variation of terms and conditions of service, particularly where the undertaking is in financial crisis.

The UK Court of Appeal decision in Wilson v St Helens Borough Council and Meade & Baxendale v British Nuclear Fuels [1997] IRLR 505 established that if there is a transfer of an undertaking and employees are transferred, their terms of service cannot be varied lawfully for a reason connected to the transfer, even if the employees consent to the variation and, it seems, regardless of how long after the transfer the variation is made. In reaching that decision, the Court of Appeal purported to follow the ECJ decision in Daddy's Dance Hall Case 324/86 [1998] ECR 739; [1988] IRLR 315 where it was held that a worker cannot waive the rights conferred upon him by the mandatory provisions of the Directive, even if the disadvantages are offset by advantages so that, overall, he is not left in a worse position. On the other hand, the ECJ decision does not prevent variations by agreement between the parties where the reason is unconnected to the transfer. Indeed, the ECJ said at paragraph 18 of its judgment that where, apart from the assumption of a transfer of an undertaking, national law permits the alteration of the employment relationship to the detriment of workers, such alteration is not excluded [by the Directive] purely because the undertaking has been the subject of a transfer.

The case also established that employees who are dismissed for economic, technical or organisational reasons may be re-engaged subsequently on different terms and conditions but that a dismissal by reason of a transfer otherwise than for an economic, technical or organisational reason is ineffective. The uncertainty produced by that decision was highlighted in Cornwall County Care Ltd v Brightman [1998] IRLR 228 by Morison J, who pointed out the unsatisfactory practical consequences of dismissals that were nullities and the absurd result of finding that workers were dismissed but were still entitled to employment on the same terms as those enjoyed before the transfer. The House of Lords judgment in Wilson & Meade was promulgated on 29 October 1998.  Lord Slynn, who gave the only detailed judgment, confirmed that employees dismissed for economic, technical or organisational reasons can be validly re-engaged on different terms (Wilson) but held that a dismissal by reason of a transfer which is not protected by economic, technical or organisational reasons is nevertheless effective to terminate the contract of employment (Meade). The worker is then left to enforce against the transferee whatever remedies are provided under national law. The employer, whether transferor or transferee, cannot use the transfer as a justification for the dismissal in the absence of an economic, technical or organisational reason but, if he does dismiss, the dismissal is effective though unlawful and under UK national law the worker can proceed in a claim for unfair dismissal. Lord Slynn's judgment also endorses the principle that the validity of downward variation of terms hinges on whether or not that variation is for a reason connected with the transfer. He thought that the tribunal and the Court of Appeal in Wilson were entitled to find that the transfer of the undertaking was not the reason for the variation and so the variation would have been effective even without the dismissals. In Meade there was no such finding but, since the dismissals were effective anyway and the employees had received substantial compensation for loss of employment, they were free to agree re-engagement terms with the transferee employer. There was no variation but a dismissal and re-engagement.

The House of Lords judgment does not resolve the conundrum that if it is not lawful for a transferee of an undertaking to negotiate consensual variation in the terms of employment of the existing workforce as part of a transfer, a business which is in financial difficulties, but which might be saved by re-organisation, cannot be rescued. The result might be that the undertaking is forced into closure and all jobs are lost: the consequence of an interpretation of a Directive which was meant to protect jobs! The employer can dismiss and re-engage on different terms but if he does and the defence of economic, technical or organisational reason is not made out, he will incur liability in unfair dismissal.

The new Article 4a gives a solution. First, it provides that, unless Member States provide otherwise, employees' rights are not safeguarded on a transfer where the transferor is the subject of bankruptcy or analogous insolvency proceedings instituted with a view to the liquidation of the transferor's assets which are under the supervision of a competent public authority (including an insolvency practitioner authorised by a competent public authority). This clarifies the position following the ECJ decisions in Abels v Bedriffsvereniging voor de Metaalindustrie en de Electrotechnische Industrie Case 135/84 [1985] ECR 469 , D'Urso and Others Case 362/89 [1991] ECR 1-4105 and Jules Dethier Equipement SA v Dassy Case 319/94 [1998] IRLR 266. Abels established that the Directive did not apply to a transfer in the course of insolvency proceedings under judicial supervision and D'Urso extended the non-application of the Directive to transfers made as part of a creditors' arrangement on compulsory administrative liquidation. But Jules Dethier applied the Directive to transfers in the course of winding up where the undertaking continued to trade. The new provision allows the exclusion of the Directive if insolvency proceedings are merely to realise assets.

In any other case, or where a Member State chooses not to exclude the Directive in that case, employees' rights are safeguarded on a transfer during insolvency proceedings. However, provided such proceedings are under the supervision of a competent public authority, a Member State may provide that the transferor's employment "debts" payable before the transfer or before the opening of insolvency proceedings shall not transfer to the transferee. This is conditional on the national law of the Member State providing protection at least equivalent to that set out in Council Directive 80/987. That Directive requires Member States to guarantee employees' pay for specified periods where the employer is insolvent. Member States are permitted to set a ceiling to the liability for employees' claims. UK provisions are contained in sections 182-190 Employment Rights Act 1996. The usual ceiling to a week's pay (presently £220) applies. The use of the word "debts" in the new provision is significant; the word used in Article 3(1), which contains the standard novation principle, is "obligations", suggesting that it is only accrued and liquidated amounts which may be excluded from transfer, for example arrears of wages and salary or accrued holiday pay.

Additionally or alternatively, Article 4a paragraph 2(b) permits Member States to provide that, on a transfer during such insolvency proceedings, employees' representatives may agree alterations to the employees' terms and conditions of employment " designed to safeguard employment opportunities by ensuring the survival of the undertaking". It is this provision which addresses the concerns raised by Wilson and it is clear from the tenor of the UK Public Consultation Document that national regulations will be amended to allow such variations. The new provision allows negotiated and consensual variation, but (subject to Article 4a paragraph 3 which contains a special provision allowing one Member State, which already has special national procedures to promote the survival of companies declared to be in a state of economic crisis, to agree alteration of employment terms in such cases) only where the undertaking is already the subject of insolvency proceedings and the purpose must be to ensure the survival of the business. It should be noted that the relevant employer has to secure the agreement of representatives of the employees (defined according to the law and practice of the Member State), not of all workers, but, presumably, though Article 4a paragraph 2(b) does not specifically require the alteration of contract terms to be established objectively as essential or necessary for the survival of the business, disaffected employees could challenge a variation if they could undermine its alleged purpose by showing that less drastic downward variation would be equally effective.

The qualifications attached to the new Article 4a emphasise the reservations that representatives of Member States had to this derogation from the Directive's general provisions. There is a requirement that Member States take appropriate measures to prevent misuse of insolvency proceedings in such a way as to deprive employees of the rights ordinarily conferred by the Directive (article 4a paragraph 5). Also, the Commission is required to present a report on the effects of this provision before 17 July 2003, ie within five years of its earliest possible commencement.

There is no amendment permitting Member States to allow derogation wherever the parties agree; the Daddy's Dance Hall principle remains intact so that only a variation in contract terms which is unconnected with the transfer will be valid, even if the employee agrees to that variation and even where he has received consideration for the variation. An extreme example is the Court of Appeal decision in Credit Suisse First Boston (Europe) Ltd v Lister, Times Law Report October 22 1998, where an employee who received company shares in return for entering a no-competition covenant with the transferee employer was held entitled to renege on that covenant. It is significant that the covenant was part of the arrangements for the transfer of employees and was made on the occasion of the transfer of the undertaking. If it had been otherwise it might have been arguable that the variation was not for a reason connected with the transfer and was not unlawful under the Directive. If the need for variation is caused by circumstances quite separate from and independent of the transfer, for example, the unforeseen loss of a major customer, the transferee employer can do lawfully whatever the transferor employer could have done in similar circumstances ie negotiate a consensual variation of contract. The uncertainty of the proof required to establish that separate and independent reason continues even after the amendment of the Directive.

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3. Employee representation, information and consultation

Article 5 Paragraph 1 repeats the original Directive's preservation of continuity of employee representation on a relevant transfer where the undertaking preserves its autonomy. A new provision requires Member States to ensure interim representation of employees pending new elections for permanent representation where the undertaking transferred does not preserve its autonomy. This is notwithstanding reservations expressed in the UK Public Consultation Document of difficulties of practical implementation and concerns that a novel kind of interim employee representative would have to be created. The provision is mandatory so the UK will have to comply.

Another new provision enables Member States to take necessary measures to ensure proper employee representation pending election or designation of representatives where the transferor is the subject of bankruptcy or analogous insolvency proceedings instituted with a view to the liquidation of assets. Since those are the circumstances in which the safeguarding of employment rights is excluded unless Member States provide otherwise (see above), it is particularly important that effective representation is in place.

Article 6 paragraph 1, which contains the information which the transferor and transferee are required to give employee representatives, is amended to include the date or proposed date of the transfer. This is instead of the amendment proposed by the Commission which would have required information to be given "when the transferee and transferor envisage a transfer". The UK negotiators thought that that amendment would bring no real advantages in practice and, on the contrary, would be likely to cause problems of interpretation.

The obligation to consult about measures which affect the employees in good time with a view to reaching agreement is repeated unchanged.

A new paragraph 4 provides that the information and consultation obligations apply irrespective of whether the decision to transfer is taken by the employer or by an undertaking controlling the employer and it is no excuse to an alleged breach of the obligations that the information was not provided by the controlling undertaking. This brings the obligations into line with those under the Collective Redundancies Directive 75/129.

The Commission's proposal for a small undertakings exemption from the information and consultation obligations has not been adopted but the existing exemption, which allows the exclusion of undertakings with insufficient employees to require a works council under their national legislation, remains.

Article 6 paragraph 6 is changed and provides now that where there are no representatives of employees through no fault of their own the employees must be given the same information as that to which employee representatives are entitled in advance of the transfer.

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4. Conclusion

The new Directive adopts much of the jurisprudence emanating from decisions of the European Court of Justice on the interpretation of Directive 77/187. The transfer of an activity without more will not trigger the employment protection provisions. What is needed is the transfer of an economic entity or organised grouping of resources pursuing an economic activity. It remains for the national court to determine whether, on the facts, an economic entity has transferred but there is no special provision which declares an automatic transfer where a dedicated workforce is deployed on the performance of a stable service contract involving no other assets. Provision is made for agreed variation in employment terms where the undertaking is transferred during insolvency proceedings and the variation is designed to ensure the survival of the undertaking. But the general principle remains that a worker cannot waive the protection under the Directive to permit consensual variation of terms for a reason connected with the transfer. UK national law has produced its own clarification of the effect of a non-e.t.o. transfer dismissal.

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